German Investor Confidence Slumps on Ukraine Crisis

A container ship sails in the HHLA Container Terminal Tollerort as shipping cranes stand on the dockside beyond at the Port of Hamburg in Hamburg. German gross domestic product probably fell last quarter for the first time since 2012, and escalating international sanctions against Russia over its support for rebels in Ukraine are undermining the outlook for coming months. Photographer: Jasper Juinen/Bloomberg

Aug. 12 (Bloomberg) -- German investor confidence fell to
the lowest level since 2012 as the crisis in Ukraine and a
sluggish euro-area recovery damp the outlook for Europe’s
largest economy.

The ZEW Center for European Economic Research in Mannheim
said its index of investor and analyst expectations, which aims
to predict economic developments six months in advance, dropped
to 8.6 in August from 27.1 in July. Economists forecast a
decrease to 17, according to the median of 31 estimates in a
Bloomberg News survey. This was the eighth consecutive monthly
decline and the biggest in more than two years.

A worsening standoff between Russia and the European Union
is clouding the outlook for a German economy that probably
contracted for the first time since 2012 in the second quarter.
The disruption to trade threatens to weigh on the revival in the
18-nation euro area, which has already seen Italy slip back into
recession.

“The drop in the ZEW index confirms the near-term downside
risk for the German and euro-zone economies emanating from the
Ukraine crisis,” said Christian Schulz, senior European
economist at Berenberg Bank in London. “The ‘Putin factor’
could lead to more cautious investment plans for a while.”

German Contraction

A gauge of current conditions declined to 44.3 in August
from 61.8 the previous month, ZEW said. A measure of
expectations for the euro area plunged to 23.7 from 48.1.

The euro slid after the report, and traded at $1.3342 at
12:29 p.m. Frankfurt time. The DAX Index of German stocks was
down 0.3 percent at 9,156, taking its decline to almost 9
percent since it closed at a record on July 3.

Germany’s economy probably shrank 0.1 percent last quarter,
according to a Bloomberg News survey. While that’s largely a
consequence of a warm winter that pulled production into the
first quarter, when gross domestic product rose 0.8 percent,
events in eastern Europe threaten to slow activity in coming
months. The Bundesbank predicted in June that German growth will
be 1.9 percent this year.

“The decline in economic sentiment is likely connected to
the ongoing geopolitical tensions that have affected the German
economy,” ZEW said in a statement. “Since the economy in the
euro zone is not gaining momentum either, the signs are that
economic growth in Germany will be weaker in 2014 than
expected.”

EU Sanctions

The European Union agreed last month to curb Russia’s
access to bank financing and advanced technology in its widest-ranging sanctions yet.

Dusseldorf-based Rheinmetall AG reduced its 2014 profit
forecast after the German government blocked a contract to build
a military training center east of Moscow. Fraport AG, the
operator of Frankfurt’s airport, cut its retail outlook after
the number of Russians departing Europe’s third-busiest hub fell
3.8 percent in the first half.

German second-quarter GDP data will be published on Aug. 14
along with figures for the euro area. The currency bloc’s
economy probably expanded 0.1 percent in the three months
through June, down from 0.2 percent in the previous period,
according to a separate survey. Figures last week showed that
Italy, the region’s third-biggest economy, posted a second
straight quarter of contraction.

ECB Stimulus

European Central Bank President Mario Draghi said last week
that “heightened” political risks could affect the region’s
recovery. He spoke after policy makers left the bank’s benchmark
interest rate unchanged at a record low of 0.15 percent and kept
the deposit rate at minus 0.1 percent. The ECB announced an
unprecedented package of stimulus measures in June that will
take time to work through to the real economy.

“Germany’s economic upswing stands on shakier legs than
was expected only a short while ago,” said Heinrich Bayer, an
economist at Postbank AG in Bonn. “But as long as the current
geopolitical tensions don’t escalate further, we still assume
the German economy will develop positively in the near future.”

Much of eastern Europe will probably report slower economic
growth for the second quarter. Poland’s economy expanded 0.5
percent from the first quarter, down from 1.1 percent in the
previous period, according to the median estimate in a Bloomberg
survey. Growth probably also cooled in Hungary and the Czech
Republic. The nations, along with Romania, Bulgaria and
Slovakia, will report GDP data on Aug. 14.